Thursday, September 17, 2009

Health Care

Most Republicans have been deeply unhappy with the Democratic health care proposals so far, and Republicans on the Finance Committee were said to be bracing for two possibilities: a partisan proposal that they were going to oppose, or a bipartisan proposal that they were going to oppose.

This piece from Politico offers some useful insight into the extent to which Sen. Olympia Snowe (R-ME) is under just as much political pressure to oppose health care reform as she is to support it.

Conservative members of her caucus aren't being particularly shy about where they stand."It would be terrible if one Republican chose to basically sell out the whole Conference," said Sen. Jim DeMint (R-SC), "particularly in return for some naive idea that we can get some compromise here and that it's going to hold up in [a House-Senate] conference."

"If Republicans are unanimous or maybe unanimous but one -- that puts a real spotlight on anybody who does differ from all of their colleagues," said Sen. John Kyl (R-AZ)

One reason the Baucus bill is “cheaper” than the House bill is that it has lower subsidies. For illustration, let’s assume that the whole $140 billion difference is due to lower subsidies. Relative to the House bill, then, the Baucus bill costs the government $140 billion less; but it costs middle-income people exactly $140 billion more, since they have to buy health insurance. The difference is that in the House bill, the money comes from taxes on the very rich; in the Baucus bill, it comes out of the pockets of the middle-class people who are getting smaller subsidies. Put another way, the Baucus bill is the House bill, plus a $140 billion tax on people making around $40-80,000 per year. That’ s not only stupid policy; it’s stupid politics.

Ezra Klein notes a fact that we talked about yesterday. Why include so many Republican ideas in the Baucus bill if no Republicans are joining on board?

At this time, Baucus has no Republican votes for his legislation. Olympia Snowe is a maybe, and Enzi and Grassley are pretty certain to vote against it. Conceding so much in return for so little isn't just bad politics -- it's bad precedent. Why should Republicans sign onto Baucus's proposals in the future if they can simply adjust the bill to their liking and then withhold their support at the end?

If Baucus's Republican colleagues want to support this bill and give him some cover, their presence should be welcomed. But if not, Baucus should loudly and publicly allow the Democrats on his committee to strengthen the bill, as it will be a Democratic majority that passes the bill. A bipartisan group should shape a bipartisan bill. But a bipartisan group should not get to shape a partisan bill, particularly if that bill becomes partisan because they have abandoned it.

I'd go further than Ezra. Regardless of the level of GOP support, Democrats on the committee, and in the Senate more generally, should have the ability to shape the bill as they see fit. Max Baucus doesn't run the Senate, and he isn't the only committee chair involved in this process. Considering the amount of money the insurance industry has given Baucus, it's rather obscene that he even has a role in this debate - especially since President Obama promised us during the campaign that he was not going to let special interests and lobbyists craft his policies and legislation. Suddenly, a man bought off by the very industry we're trying to regulate has been appointed by the president as chief regulator. OpenLeft did a search of Baucus' top ten donors - here they are. Anything look familiar?

I worked in the Senate for five years. Don't think for a moment that members of Congress aren't acutely aware of who gives them the most money, and don't think for a moment that it doesn't buy influence, because it does.

One element of Max Baucus’ health care proposal is a new “excise tax” on insurers who offer high-value health care plans. This is basically a backdoor way of curbing the tax exclusion for employer-provided health care, since the incidence of the taxes should be the same either way. But it’s politically a bit easier to do. Also helping to ease the path is that the tax threshold is set quite high, so the vast majority of people won’t be impacted at all. But there’s a catch! The threshold is indexed to the CPI, not to the growth in health costs or health insurance premiums. Since premiums are growing way faster than CPI, this means that each year more-and-more plans will hit the threshold. That will mean some combination of additional payment of the excise tax and some additional switching by employers away from giving people expensive health plans and toward giving them higher wages, with the wages subject to taxation.

This accomplishes two things. One it tends to “bend the curve” over time by encouraging people to consume less health care and more Stuff That’s Not Health Care. Two, it means that over time the tax generates more-and-more revenue reducing the deficit over the long haul—thanks to this latter feature, the Baucus Plan looks much better relative to the House bill if you score it on a 20-year time horizon, which presumably is why Kent Conrad wants health care scored on a 20-year time horizon.

At any rate, I think this is a great idea—very clever. Ezra Klein, however, tempers my enthusiasm by worrying that it may be too clever: “There seems a substantial chance that it will become like the AMT, and Congress raises it year after year to escape consumer backlash.” Maybe! But this is the part where making it an excise tax on insurance companies rather than a tax on beneficiaries makes a different. Even though the incidence of the two taxes is the same, the administration is totally different. When a new person is hit by the AMT it’s the most obvious tax change in the world—you literally need to go fill out a set of different forms that screams “YOU’RE PAYING A NEW TAX.” Members of congress naturally fear a backlash. But the excise tax structure will help avoid this by making the tax largely invisible to everyone outside insurance companies and corporate HR departments.

All things considered, this is good policy done in an impressive artful way. Any final bill would do well to mimic it. And it’s worth noting that though the House bill is deficit neutral within a ten year window, by year ten expenditures already exceed revenues and that problem would grow worse in years eleven, twelve, etc. Baucus’ excise tax avoids that problem, which is a big plus.